Maritime Legal Review with Philip C. Brickman

Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp applies retroactively to those cases pending on direct appeal at the time the U.S. Supreme Court issued its opinion.

The Court of Appeals for the Second Circuit (“Court of Appeal”) recently reversed and remanded a district court decision holding that the Carmack Amendment does not apply to international multimodal shipment originated overseas under an intermodal through waybill. The Court of Appeal retroactively applied the Supreme Court’s reasoning from Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp (“Kawasaki”), which abrogated the binding precedent at the time.

The facts in this case are materially indistinguishable from the facts found in the Kawasaki case. A cargo buyer purchased cargo from an affiliate in Japan under FOB terms. The affiliate hired a common carrier (“Evergreen”) to ship the cargo from Japan to North Carolina. Evergreen issued an intermodal through waybill for the entire shipment. The waybill provided for the following conditions: (1) the Carriage of Goods and Sea Act (“COGSA”) as the applicable liability regime; (2) Evergreen was permitted to subcontract the inland portion of the carriage; (3) a Clause Paramount extending COGSA beyond the tackles; and (4) a Himalaya Clause permitting Evergreen’s subcontractors to invoke COGSA liability limitations.

In order to transport the cargo over the inland part of the shipment, Evergreen subcontracted with a rail carrier (“Union Pacific”) under a standard contract. During the rail transit, the train derailed and the cargo was damaged.

The Plaintiff, an insurance company subrogor of the cargo buyer, filed suit for loss of cargo against Evergreen and Union Pacific. Evergreen filed a cross-claim against Union Pacific. Union Pacific admitted liability and assumed Evergreen’s defense under the waybill. The only issue in the case was the amount of damages. Applying binding precedent at the time, the district court held that that the Carmack Amendment applied to the carriage. Evergreen and Union Pacific appealed and the Court of Appeal was asked to decide which federal statutory scheme governs the extent of the parties’ liabilities: The Carmack Amendment (akin to strict liability) or COGSA (negligence-based liability with a $ 500-per-package damages cap).

The Court of Appeal retroactively applied the Kawasaki decision and vacated the district court decision holding that that the Carmack Amendment does not apply to a shipment that originated outside the United States pursuant to an intermodal waybill issued by a common carrier.

As stated by the Supreme Court in Kawasaki, the Carmack Amendment only applies where a receiving rail carrier, as opposed to a delivering or connecting rail carrier, is required to issue a Carmack-complaint contract for the carriage of goods. A receiving rail carrier is required to issue a Carmack-complaint contract when the cargo is received as a point of origin for rail transport in the United States.

In this case, the Court of Appeal held that the Carmack Amendment did not appy to either Evergreen or Union Pacific. Evergreen received the property at the shipment’s point of origin in Japan, and Union Pacific only accepted the goods from Evergreen for further transport. Therefore, neither party was considered a “receiving rail carrier” under the Carmack Amendment.

To distinguish the Kawasaki holding, the plaintiff raised a series of arguments that were rejected by the Court of Appeal. The plaintiff argued that the facts of the case were distinguishable from Kawasaki because Union Pacific agreed to ship the cargo by rail under the terms of a standing contract. The plaintiff asserted that the contract was a “separate bill of lading for the interstates rail carriage” and, therefore, the Carmack Amendment should apply to the carriage. The Court of Appeal rejected this argument reasoning that the contract did not call for a “new journey.” The waybill called for intermodal transportation between Japan and North Carolina and the Port of Los Angeles was only a midpoint.

Second, plaintiff argued that the case differs from Kawasaki because Evergreen’s waybill provided that “all claims arising hereunder must be brought and heard solely” in the federal or state courts of New York. The Court of Appeal refused this argument on the basis that whatever the parties agree as to venue and choice of law, Japan was the point of origin of the shipment. Under the venue provisions of the Carmack Amendment, a claim against a receiving carrier may only be brought in the judicial district in which the point of origin is located.

Finally, the plaintiff contented that Kawasaki should not be applied retroactively. This argument was also rejected on the principle a Supreme Court’s holding must be retroactively applied to all cases open on direct review. The case at bar was pending on direct appeal when the Supreme Court issued the Kawasaki decision.

This decision confirms the Supreme Court’s holding in Kawasaki. The Carmack Amendment does not apply to international multimodal shipment originated overseas under an intermodal through bill of lading. However, this case is also of importance because it directs U.S. Courts to retroactively apply Kawasaki to all cases pending on review at the time the Supreme Court issued that decision. Accordingly, any case where a court has held the Carmack Amendment applies based on the abrogated binding precedent will likely be reversed.

This case may also provide support to the argument that a subcontract issued by a rail carrier is not considered a Carmack-complaint contract for the carriage of goods when the shipment is originated in a foreign country pursuant to an intermodal bill of lading issued by a common carrier.